Mining tax flaws to be investigated

Treasury Secretary Martin Parkinson said mining companies were under no obligation to tell Treasury about changes to their starting cost base valuations or other key accounting adjustments which would affect the MRRT.
Photo: Andrew Meares

A parliamentary committee will investigate whether concessions granted to mineral giants are responsible for the mining tax revenue ­shortfall, a step that will prolong the political pressure on the Gillard ­government.

A Greens bill that seeks to fix design flaws in the tax was referred to the House of Representatives Economics Committee on Thursday, hours after Treasury admitted it lacked crucial information when it calculated now-failed revenue forecasts for the tax.

Department secretary
Martin Parkinson
said mining companies were under no obligation to reveal changes to their starting cost base valuations and other key accounting adjustments used to forecast tax receipts.

The tax raised just $126 million in its first six months, in a year in which it was forecast to raise $2 billion.

The tax applies only to iron ore and coal. The low receipts appear to vindicate long-standing claims by other mining executives such as Fortescue Metals Group’s
Andrew Forrest
that the mining giants had negotiated the tax with the government to their own benefit.

Mining executives, Treasury officials and economists are likely to be called by the committee when it studies the bill, which seeks to limit the level of royalties paid to state governments that miners can deduct from their MRRT liabilities.

It would also stop them deducting the market value of existing projects over their life. Deductions would be allowed using the projects’ book value over five years.

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bUDGET IMPLICATIONS WILL BE PROBED

The committee will examine “the extent of the erosion of Commonwealth revenue due to the minerals resource rent tax’s requirement that increases in state royalties be rebated, the adequacy of the bill to remove this requirement and whether related issues arise in the application of the minerals resource rent tax that also erode Commonwealth revenue’’.

It will probe implications for the budget and what undertakings the government gave the minerals giants when it renegotiated the tax.

Resources Minister
Martin Ferguson
said the government would not walk away from the undertakings with the miners.

The inquiry could further embarrass the government if the mining companies are found to be responsible for the lack of revenue, as claimed.

The government could use its numbers to block witnesses appearing or force hearings to be held in camera.

Dr Parkinson told a Senate estimates committee on Thursday that Treasury’s revenue estimates – including as recently as the mid-year budget update – “drew heavily" on information provided by the resources industry when the MRRT was negotiated after Labor dumped
Kevin Rudd
and his resources super profits tax.

rISING TENSIONS

Under the new agreement negotiated with Prime Minister
Julia Gillard
, Treasurer
Wayne Swan
and Mr Ferguson, Dr Parkinson said, companies were under no obligation to provide Treasury with any subsequent changes.

In a sign of rising tensions between the department and Mr Swan, a spokeswoman for the Treasurer pointed out that Treasury did not have access to the full financial details of individual taxpayers but based its forecasts on the best available data.

“This is no different to forecasts of other revenue heads and costings of other business and personal tax measures," the spokeswoman said. “And it is no different to how things operated under the last government."

It is understood that it would have been unprecedented for the agreement with miners to allow for ongoing access to commercial-in-confidence information.

Dr Parkinson said the department was able to calibrate its MRRT revenue forecasts for some elements, including commodity prices and volumes, state royalty rates and the currency.

However, Treasury officials were unable to see any changes to assumptions used by companies when determining their MRRT liabilities, he said. “When those components of the mining industry talked with us, there was no legal obligation on them to settle on the starting base," Dr Parkinson said. “They gave us their best estimates. They had … the opportunity to rethink that."

Asked how Treasury would address the gap in its forecasting, Dr Parkinson said the department’s only avenue was to work with the Australian Taxation Office. “The Treasurer has been very explicit that the Treasury and Tax Office will try and unpick this," he said.

The big miners are understood to have changed their estimates since those negotiations. As one put it, estimates “naturally" change over time. They argue the biggest single impact on the mining tax take is not the starting base deduction that eats at the bottom line but foreign exchange rates.